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What’s in a Name?

By October 21, 2013October 26th, 2020No Comments

“What’s a wealth manager anyways? Don’t you all call yourselves wealth managers? I can’t tell any of you apart. ” That question has been asked of me many times over the years, so I thought I’d offer an answer today.

In the old days, everybody was a ‘stockbroker.’ The image of a salesman, yelling into the phone, buying shares of this or that stock, generating commissions by convincing anyone with money to buy the idea of the day, to me, is a stockbroker.

When was the last time you saw the word ‘stockbroker’ on a business card? Now you see titles such as financial consultant, financial planner, or in this case, Wealth Manager.

What then, is a wealth manager? Generally the term wealth manager refers to someone who offers more than just investment advice, but offers advice that can encompass all parts of a person’s financial life. For example, while a wealth manager typically isn’t a tax professional, he or she is usually familiar with tax strategies and attempts to minimize your tax burden. The wealth manager is not an attorney, but can offer ideas and help you pay attention to your estate plan, including beneficiary planning, so that you can pass your estate to the person(s) or entities of your choice. Insurance planning, educational planning and even social security planning are all items that a wealth manager might assist you with.

What does that look like in real life? Let me share three stories that will illustrate the difference a true wealth manager can make. These examples are for illustrative purposes only.

1) My client looked a little pale and with good reason. He had just learned that his father, who owned a large IRA, had made a mistake and owed $100,000 in excise penalty taxes. This excise tax was easily preventable. What happened?

His 75 year old father was obligated to take a Required Minimum Distribution (RMD) annually from his IRA. The father knew about this obligation since he had already taken some in prior years. Last year? He forgot. The penalty? The IRS imposes a 50% penalty on missed RMDs.

In his case, the RMD was supposed to be $200,000 so the penalty was $100,000.

Don’t be too hard on dear old Dad, he had a health problem and some other personal issues last year and he just plain forgot.

A true wealth manager would have made every effort to ensure that their client took the necessary steps to avoid such a large penalty.

2) Sam spent more on long term care every month than he had ever spent on a vacation in his entire life. His savings were dwindling and his family was struggling to find an alternate, and less desirable, solution. This was unfortunate because, while Sam didn’t really enjoy being in a long term care facility, he liked the place where he was living.

Why did Sam end up here, spending money on Long Term Care that he could have spent on his family, or left to his favorite charity? No one had ever spoken to Sam about Long Term Care insurance, which might have significantly softened the pain of paying out of pocket for long term care.

A wealth manager takes a holistic view of their client’s finances. Holistic is defined as, “relating to or concerned with wholes or with complete systems rather than with the analysis of, treatment of, or dissection into parts.” A wealth manager would have looked at Sam’s entire financial situation and recommended steps to take that would help Sam avoid situations like the one he found himself in. Sam could have declined to purchase Long Term Care insurance, but at least he would have been making an educated choice.

Incidentally, wealth managers don’t necessarily sell Long Term Care insurance, but they know someone who is familiar with the product and can help investors figure out the options.  They always have someone ‘in their back pocket’ who can help with all the various challenges we face financially.

3) Sylvia was referred to my office by another client and decided to move her portfolio to our firm to manage. Among her investments she owned an annuity that included a beneficiary designation. I asked Sylvia who her beneficiaries were and she replied that it was a simple set up. Each of her four children would receive one quarter of the value of the annuity upon her passing.

“Sounds good,” I said. “Do you mind if we call the annuity company to confirm?”

Sylvia was happy to do so. We called the annuity company, asked about the beneficiary designations, and got this answer, “It’s set up so that 75% goes to Peggy (one of Sylvia’s daughters) and the rest goes to Nancy (Sylvia’s niece).”

Needless to say, Sylvia was shocked and upset. She was also very glad we had called the annuity company. If something had happened to her, she would have disinherited three of her four children! Not the way she wanted to leave her estate.

A wealth manager knows the importance of beneficiary designations and follows up frequently to make sure they are correct.

Statistically speaking, only 6.6% of all financial advisors in this country are wealth managers (CEG Worldwide statistic), meaning they practice true wealth management. These 6.6% use a consultative process to establish close relationships with clients in order to gain a detailed understanding of their goals and their most important financial wants and needs. They offer customized choices and solutions designed to fit each individual’s needs. This select range of interrelated financial services and products might include, for example, investment management, insurance, estate planning, retirement planning and charitable gifting vehicles. The wealth manager then works closely with clients and their other professional advisors—such as their CPAs, estate planning attorneys and insurance providers—on an ongoing basis to identify their specific needs and design custom strategies.

For financial planning or ‘wealth management,’ please give us a call. We work with clients with liquid assets of $500,000 or above.  We manage investments, certainly, but also take pride in taking a more holistic view of your finances.